Lyon v. Belosky Construction, Inc.
669 N.Y.S.2d 400 (1998)
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Rule of Law:
In a breach of a construction contract, the measure of damages is the cost to correct the defect; the 'economic waste' doctrine, which awards the diminution in value, does not apply when the defect is substantial and aesthetic considerations were a central component of the parties' bargain.
Facts:
- Mary C. Lyon and Martha Clute contracted with Belosky Construction, Inc. to build a custom home for a total cost of approximately $289,000, based on architectural drawings.
- Plaintiffs also retained Kirk Vieselmeyer, an engineer, to prepare construction documents and conduct periodic inspections to ensure the home was built in conformity with the drawings.
- During construction, a dormer over the main entrance was built incorrectly, removed, rebuilt unsatisfactorily, and then removed a final time.
- After moving into the home, plaintiffs discovered that the entire roof had been misaligned, centered over the library instead of the living room as required by the drawings.
- This misalignment fundamentally altered the home's roof proportions, enlarged the front overhang, and prevented the entrance pillars from being used as depicted in the plans.
- The aesthetic appearance of the home was of the utmost importance to the plaintiffs when they entered into the contract.
Procedural Posture:
- Plaintiffs Mary C. Lyon and Martha Clute commenced an action for breach of contract against defendants Belosky Construction, Inc. and Kirk Vieselmeyer in the New York Supreme Court, Chemung County (a trial-level court).
- Defendants asserted the affirmative defense of economic waste, arguing damages should be limited to the diminution in the home's value.
- Following a nonjury trial, the Supreme Court found in favor of the plaintiffs.
- The trial court awarded plaintiffs a judgment of $73,182.66, representing the cost to replace the roof.
- Defendants appealed the judgment to the Supreme Court, Appellate Division, Third Department (an intermediate appellate court).
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Issue:
Does the economic waste doctrine apply to limit a breaching contractor's liability to the diminution in the property's market value, rather than the cost of replacement, when the breach results in a substantial aesthetic defect in a custom home where appearance was of primary importance to the owner?
Opinions:
Majority - Cardona, P. J.
No. The economic waste doctrine does not apply to limit damages here because the defect was substantial and undermined a core aesthetic purpose of the contract. The general measure of damages for a breach of a construction contract is the cost to remedy the defect to bring the structure into conformance with the contract. The exception, known as the economic waste doctrine, applies only where the breach was unintentional, the contractor achieved substantial performance in good faith, and the cost of replacement would be unreasonably wasteful. Here, the defendants were at least negligent in failing to discover the roof's misalignment, a substantial defect that should have been apparent. More importantly, the plaintiffs contracted for a custom home where aesthetics were paramount; they did not receive the benefit of their bargain. Under these circumstances, awarding the cost of replacement is not unreasonable economic waste but is the appropriate remedy to give the plaintiffs the aesthetically pleasing home they contracted for.
Analysis:
This decision refines the application of the economic waste doctrine, famously established in cases like Jacob & Youngs v. Kent. It clarifies that the doctrine is not a shield for contractors who commit substantial errors, especially in contexts like custom home construction where aesthetic value is a primary, bargained-for objective. The court prioritizes the non-breaching party's 'benefit of the bargain' over a purely economic calculation of market value, signaling that subjective, aesthetic considerations, when central to a contract, are legally protectable with damages measured by the cost of correction. This precedent makes it harder for contractors to escape liability for significant aesthetic flaws by arguing that the flaws do not substantially decrease the property's sale price.
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